Breaking

Treasury Trims Some Debt Auctions as U.S. Deficit Shrinks

April 30 (Bloomberg) -- The U.S. Treasury Department said
it will trim the size of two- and three-year note auctions
starting this quarter as a shrinking budget deficit gives the
government scope to reduce borrowing.

Three-year note sales will decline to $29 billion in May,
$28 billion in June and $27 billion in July, from the current
level of $30 billion, a Treasury official told reporters in
Washington today. Auctions of two-year notes will drop to $31
billion in May, $30 billion in June and $29 billion in July,
from $32 billion, the official said.

“Deficits keep coming down and that makes the Treasury cut
the coupon issuances,” said Ira Jersey, an interest-rate
strategist at Credit Suisse Group AG in New York. “Better tax
receipts are helping lower the deficit, so Treasury doesn’t need
to issue as many bonds.”

The nation’s budget deficit will narrow to $492 billion
this year, about a third of its 2009 record level of $1.4
trillion, the Congressional Budget Office said on April 14. Next
year, the gap will decline further, to $469 billion, the
nonpartisan agency said.

Treasuries rose after a government report released at the
same time as the refunding details showed the U.S. economy
slowed more than forecast. The yield on the benchmark 10-year
Treasury note fell 2 basis points, or 0.02 percentage point, to
2.67 percent at 10:49 a.m. in New York.

Tax Receipts

Matthew Rutherford, the Treasury’s assistant secretary for
financial markets, said in a press conference that tax receipts
around the April 15 filing deadline have been “pretty strong”
compared with a year ago.

“We’re still getting incoming information from the April
tax season, so we’ll learn more in the days and weeks ahead,”
Rutherford said. “But that was certainly a part of our overall
decision and I think we were confident that we would be able to
reduce our borrowing as a result of it.”

The fiscal improvement will allow the U.S. to pay down $78
billion in net marketable debt from April through June, the
biggest quarterly reduction in seven years, the Treasury said on
April 28.

“We have made more progress reducing the deficit at a
faster speed than any time since the end of World War II,”
Treasury Secretary Jacob J. Lew told a House Appropriations
subcommittee yesterday.

Auction Sizes

Auctions next week of notes and bonds will decline to $69
billion, compared with $70 billion last quarter. The sales will
raise $9.7 billion in new cash.

The Treasury will sell $29 billion in three-year notes on
May 6, $24 billion in 10-year notes on May 7, and $16 billion in
30-year bonds on May 8, according to today’s statement.

“All members agreed that Treasury remained overfunded in
the near term and could begin a gradual set of cuts,” the
Treasury Borrowing Advisory Committee of the Securities Industry
and Financial Markets Association, said in minutes of a meeting
yesterday.

The panel, known as TBAC, also recommended that the
Treasury consider increasing cash balances to mitigate
situations in which normal access to funding markets might be
disrupted, as was the case after the Sept. 11, 2001, attacks and
following Superstorm Sandy in 2012.

“The Committee agreed that Treasury should present a
proposal for a cash-balance framework that better accounts for
these risks at the August meeting,” the minutes of the panel
said.

Buyback Option

“TBAC suggested that this proposal include possibilities
regarding potential ways to fund such a liquidity buffer,” the
minutes showed. “The Committee was also supportive of
Treasury’s examination of other tools to manage its volatile
maturity profile, including potential changes to the issuance
calendar, buybacks, and switches.”

Rutherford said the Treasury and the TBAC discussed the
possibility of buying back securities, which was last pursued
more than a decade ago during periods of declining deficits and,
in some years, budget surpluses. Buybacks were suspended in
April 2002.

While buybacks can also be used to manage maturity
profiles, he said there are no imminent plans to reintroduce
them.

The Treasury has been increasing the proportion of long-term debt and cutting the share of short-term bills in its
overall portfolio to lock in low interest rates for as long as
possible. The bill supply represents the lowest share of
Treasury debt outstanding since the 1950s, economists Ward
McCarthy and Thomas Simons of Jefferies LLC said in an April 25
note.